Today (Sep 17, 2013) I’m moderating a swap futures panel at the Institutional Investor Fixed Income Forum event in Westchester County. For those of you keeping score at home that’s two swap futures panels in two days. We have a great lineup (Citi, Vanguard and CME) but will be one less than expected. Our CFTC panelist unfortunately had to decline given the pressing issues in Washington. Although having the regulatory view as part of our discussion would have been great, I think we should all be happy that they are keeping focused on the task at hand. We don’t want a delay in the October 2 SEF implementation after all – or do we? But I digress…
One of the great topics we need to cover is why swap futures are margined based on 2-day VAR while swaps are margined based on 5-day VAR. What that implies, in theory at least, is that the futures contracts are more liquid and hence easier to liquidate then the swaps. If you look at aggregate liquidity for ALL swaps (including the custom stuff) and compare it was aggregate liquidity for ALL futures than that theory holds true. But if you look very narrowly at interest rate swap futures versus the vanilla interest rate swap futures they mimic, than (at least today) the swaps are much more liquid than the futures. Of course that opens up another whole host of questions including how you define liquidity.
In the end I don’t see the CFTC changing their current course of action on this anytime soon. But that won’t stop the market from expressing its opinion on the topic. That is, in fact, what conferences and panel conversations are for!
Please do let me know if you’re attending the event and always feel free to email me directly at firstname.lastname@example.org.